EMMA ALBERICI, PRESENTER: Qantas will be free to sell its domestic operations into majority foreign ownership under changes to be brought before Parliament by the end of the week.

Repealing investment restrictions on Qantas was the most radical option before cabinet as it met to discuss the national carrier's problems tonight.

The Prime Minister accepts the move could see more jobs shift offshore, but he says it's in the long-term best interests of Qantas and for the Australian economy.

Political correspondent Tom Iggulden has more from Canberra.

TOM IGGULDEN, REPORTER: For two hours tonight, cabinet thrashed around options for how best to address Qantas's recent financial problems.

TONY ABBOTT, PRIME MINISTER: It was a very full discussion. It canvassed all points of view, all perspectives. Every single member of the cabinet spoke.

CHRIS BOWEN, SHADOW TREASURER: For months we've seen speculation, leaking, backgrounding by senior ministers against each other about what should happen with Qantas.

TOM IGGULDEN: The Government will look to repeal Part Three of the Qantas Sale Act, the part that keeps Qantas in majority local ownership, as well as having maintenance operations and headquarters in Australia. Another act means the international part of Qantas will remain in majority local ownership, but a major restructure now beckons for Qantas' domestic operations.

TONY ABBOTT: Under what we are proposing, Qantas International would remain in every sense an Australian airline. Qantas domestic, should there be a distinction, would remain a substantially Australian airline.

TOM IGGULDEN: It was the toughest approach open to cabinet. A less confrontational option would have been to lift some foreign ownership restrictions, but keep the airline overall in majority local hands.

Legislation's expected to come before Parliament this week. The pressure is now on Labor to decide pass or block the move in the Senate.

Isn't there a probability here that jobs could be moved offshore and that's going to be the major stumbling block for Labor, isn't it? How are you going to get past that?

TONY ABBOTT: It's deeply regrettable whenever an Australian job goes offshore, but in the long run, the best way - indeed even in quite the short run as well, the best way to maximise good jobs in this country is to maximise the competitiveness of our businesses. That's the best way.

TOM IGGULDEN: That argument's showing no sign so far of changing Labor's opposition to selling a majority stake.

BILL SHORTEN, OPPOSITION LEADER: Tony Abbott is actually saying that you have to send jobs overseas to save Australian jobs. Labor has a message for Tony Abbott tonight: we will fight to keep Qantas Australian. We will fight to keep Qantas jobs in Australia. We will fight to stop skilled jobs going overseas because once these jobs are gone, we'll never get them back.

TONY ABBOTT: I know that the Labor Party will - or the current leadership of the Labor Party will be attempted to play the short-term populist politics here.

BILL SHORTEN: Tony Abbott has created a new export industry: Australian jobs. Tonight, Tony Abbott has decided to sell off the Flying Kangaroo overseas.

TOM IGGULDEN: The Prime Minister says the move's about creating a level playing field between Qantas and its domestic rivals. Virgin Australia is majority foreign-owned.

TONY ABBOTT: I reject, if I may say so, this idea that Qantas is Australian and Virgin isn't, because let's face it, Virgin is employing Australians and it's serving Australians.

TOM IGGULDEN: The Prime Minister's looking to wedge the Opposition on the key issue of economic management in a high-risk political strategy to split Labor between economic conservatives and diehard unionists. At the same time, he's trying to soothe public concerns about a potential foreign takeover of Qantas Domestic by pointing out the Foreign Investment Review Board would have to approve any such move and it's required to look at the aviation industry as a sensitive national business.

Tom Iggulden, Lateline.

EMMA ALBERICI: And just minutes ago, Qantas has released a statement expressing disappointment in tonight's development, citing the limited chance of the Government's legislation passing the Senate and calling for more immediate action to help it compete.